Transcript of Jaihoon’s speech at the One Day workshop on “Islamic Banking and Finance”
Jan 01 2009
A UFO once landed in the Calicut town. The aliens came out of the space ship and began to roam in the streets and villages of the Malabar town. After a while, they contacted their HQ in Mars saying, ‘Negative’.
Apparently they were planning to install their relay station in order for the Earth inhabitants to stay in touch with their planet. But the choice of Calicut suffered the following defects:
1. Few potential number of people who could use/operate that facility
2. There were hardly an educational system to produce workforce to operate and carry on the required R&D for its future evolution
3. The Calicut residents also could not afford the cost of running and maintaining it
Dear friends, I wish to present here before you a sociological approach in the study of the scope of Islamic Banking in Kerala. Handicapped by incompetence, I do not wish to go into the theoretical details of this emerging banking practice. Other speakers in the session would delve on the in depth concepts. However, I wish bring into your attention certain opportunities we have overlooked in the past.
I drew my conclusions as part of the readings and interactions I conducted two years back during a visit to Kerala. Back then I had shared my perspectives on this topic with scholars and leaders such as Sheikh Muhammad Karakunnu, Dr Hussein Randathani, Munawwar Ali Shihab Thangal and Kamal Pasha.
I thank the organizers for inviting me to this scholarly function and giving me an opportunity to share my bits.
The case of believer is strange. He sees good in all that happens around him. The present global crisis is also an opportunity to highlight the positive aspects of practice of Islamic banking.
We have considered for long time that the Western concept of financial system was absolute and eternal. That is what we have studied and continue to teach our young ones. Nobody so far dared to question the ethics of Wall Street and its greedy investors.
In an article recently published on New York Times, Thomas Friedman, quotes a Hong Kong investor saying, ‘It is hard for America to take its own medicine that it subscribed so successfully for others. There is no doctor anymore. The doctor himself is sick’. In the same article, he also blames the Wall street which is ‘fuelled by cheap credit, low standards and high greed.’
It is at this point that we are projecting Islamic Banking, which is based on mutual help and risk sharing.
ISLAMIC BANKING BENEFITS
The Islamic financial instrument called ‘Sukuk’ is being considered as a solution to the badly affected world economy. According to experts, while conventional banks are on the verge of collapse, the facts and figures suggest that Islamic banks practicing Sukuk have come virtually untouched.
United Kingdom Treasury and the Ministry of Finance are seriously considering the use of Sukuk as a debt management tool in the wholesale sterling and yen markets.
Britain, which has less than 2 million Muslims, already has 6 Islamic banks, of which three were set up in 2008.
‘Allah will always help His servant for as long as he helps others.’
‘The place of relationships and feelings of people with faith, between each other, is just like the body; when one of its parts is afflicted with pain, then the rest of the body will be affected. (Narrated by Imam al-Bukhari and Imam Muslim)’
‘Basis of Mutual Protection By my life, which is in Allah’s power, nobody will enter Paradise if he does not protect his neighbour who is in distress.’
However we should understand that a bank has all the expenses as any other corporate entity. Staff salaries, electricity and water, rent and other overheads have to be borne. Islamic banking technically speaking is not about charity. The profit-motive is essential for any business. But Islamic banking cannot charge interest for this.
Islamic banking has still not reached this zenith. It is still under an evolving stage. The service charges in an Islamic bank maybe more than other conventional banks. But we should perceive such charges as fees paid for services of higher quality. Just as we are ready to pay high price for fruits of high quality in our grocery shopping, we should also be delighted to pay extra for using a service which would save us from hell-fire.
ISLAMIC BANKING IN INDIA
The Indian government is also pursuing the goal of introducing Islamic banking in India. The RBI has completed studies in this direction.
Raghuram Rajan Committee on Banking Sector Reforms in its report had recommended introducing Islamic banking in India. The term he prefers to us is ‘interest-free banking’ instead of ‘Islamic banking’. “Interest-free banking does not mean charity, of course. It only means that the investor/lendor does not get interest, but gets compensated through a form of profit-sharing.”
ISLAMIC BANKING IN KERALA
Back to the UFO story.
The aliens suggested three reasons for their ‘Negative’ attitude for implementing the relay station in Calicut. Now let us change the Relay Station to an Islamic Bank in Calicut or say Muslim Kerala.
Muslims in Kerala enjoy three exclusive features which entitle them to adopt Islamic Banking:
1. Potential population – Muslims are the second biggest community in the state. And in districts like Malappuram, Calicut and Kannur, they outnumber more than other communities.
2. The community is led by very capable political and religious leadership which has paved way for their prosperity in comparison to their counterparts in other states of India. Several groups run schools and colleges in a systematic and organized manner. The political will to implement the Islamic banking is easily available. Institutions of higher religious learning can provide the intellectual backing required for the research and development of Islamic Banking concepts.
3. Finally, there is no dearth of funds as Muslims in Kerala are perhaps the wealthiest in the country having the highest standard of living. “There is at least Rs5,000 crore of unclaimed interest in Kerala alone. People prefer to put their money in gold or jewellery, which is the worst kind of investment from an economic point of view,” says an expert.
These above factors necessitate the founding of Islamic Banking in Kerala much earlier than in any other part of India.
According to Sheikh Mohammed Karakunnu around 200 institutions exist today in Kerala operating to achieve the above goal.
There are bodies such as Indian Association for Islamic Economics (IAFIE), but the banking model is yet to hit the mainstream. The RBI is yet to recognize them as legal entities.
The bright side of life is Islamic Banking is seen by all as a workable financial system and not as a religious move by religious fanatics. Many conventional banks have opened their separate Islamic units offering sharia-compliant products and services.
It is interesting to note a comment by a lady investor Margaret McDougald,
‘I strongly believe that if we had operated on what I understand to be Islamic principles, we would not be in the current global mess we are today. I write not as a Moslem, but a Chirstian with great respect for Islam and I studied Islamic finance in order to understand how it was possible to operate without usury. The principle appears to be one of shared risk, leading to shared profit or shared loss. I am looking to put some (small) savings into an Islamic Bank as this seems to be a better way of doing things.’
We need to keep in mind that Islamic Banking is all about an ethical outlook in to the profit-motive of our lives. The present global economic breakdown is a result of beastly greed without concern for human conditions or the hand of God.
Banks are part of our community. Although individual profit-motive is not a crime, such a desire cannot kill thousands for achieving it. Allama Iqbal, the Poet-Philosopher who wrote Ilm-ul-Iqtisad, Book of Economics, talks about the explitation of banks in these words
In splendor, in seduction and in grace,
The buildings of banks outsoar the Houses of God.
In appearance it is trade, in reality gambling,
Profit for one, for thousands sudden death,